4 trends redefining the future of public currency
Trend 1: Reimagining the role of physical cash
Despite the growing popularity of digital payment methods, cash continues to play a crucial role in economies, societies, and communities, with its key attributes still highly valued.
Physical cash is inclusive, accessible, and instantly exchangeable. It does not require the sharing of personal data when used, and its critical role becomes even more pronounced during times of crisis, when its ability to bring stability to turbulent economics comes to the fore.
Furthermore, new research shows that different types of crises trigger demand for different banknote denominations. Smaller denominations are in high demand when payment uncertainties arise (such as a sustained bank outage), while larger notes are sought in times of wider economic uncertainty when people want to build up cash reserves. It’s a trend that illustrates shifting patterns of use for physical cash, as its transactional role decreases in some regions of the world even as its use as a store of value rises – the so-called cash paradox (or banknote paradox).
Trend 2: Cash centers: embracing automation, resilience, and sustainability
Whether operated by central banks, retail banks, or cash-in-transit companies, cash centers play a vital role in supporting the “four As of cash” (accessibility, availability, acceptance, and authenticity) by enabling the smooth flow of valid currency around an economy. Reacting to the evolving role of cash, cash centers are embracing innovation on multiple levels to enhance their efficiency, resilience, and sustainability.
To speed processes and address skills and labor shortages, cash centers are applying higher levels of automation in both high-volume and mid-sized banknote processing environments. This is enabling them to rely on fewer labor-intensive processes – and even eliminate some process steps altogether.
They are enhancing capabilities for the classification and sorting of banknotes, so they can more accurately detect unfit or counterfeit notes and pull them out of circulation. And they are deploying robotic capabilities that can take over manual tasks such as banknote banding, loading, reject handling, and tray filling.
Trend 3: CBDC rollouts are accelerating
Central bank digital currency, or CBDC, is a digital equivalent of physical cash that is both issued and regulated by a central bank. Designed in order to sit alongside, rather than replace, cash, CBDCs aim to bring the universality and accessibility of cash into the digital realm. And the much-publicized volatility of decentralized finance (DeFi) initiatives such as Bitcoin has further bolstered the case for CBDCs.
In 2023, 130 countries or currency unions were exploring or implementing CBDCs. Well-designed CBDCs have the ability to extend financial inclusion to the unbanked, as well as provide people with a means of participating in the digital economy even when they have no reliable access to the internet. What’s more, advanced CBDCs are being designed with interoperability at their core, so that they foster innovation and collaboration among private-sector companies that can use CBDC as platform to build customer-facing applications.
CBDC approaches are in stark contrast with those of crypto-assets, which tend to be used for speculative investment, are subject to wild swings in value, are grounded in commercial rather than societal interests, are subject to hacks, and take a “walled garden” approach, with little to no option for interoperability between platforms.
Trend 4: Payments adapting to a new generation
Despite predictions to the contrary, digitally native Generation Z is not wedded to online payment experiences. The generation coming of age in a world marked by the climate crisis, financial market shocks, geopolitical upheaval, and conflict, Gen Z is showing a newfound interest in the physicality of banknotes. For example, in tougher economic times, many are turning to “cash stuffing,” popularized on TikTok as a budgeting method that consists of putting aside predetermined amounts of cash in purpose-marked paper envelopes and spending those amounts in targeted ways each month.
As with the generations that came before them, intergenerational influence is strong among Gen Zs. Their first bank will often be the same as their parents’, but “zoomers” are also a source of influence for their parents, helping educate them about innovation in payment services.
When it comes to their own financial education, Gen Z tends to be proactive and self-driven, possibly due to uncertainties about their future. Many seek out financial advice on social media platforms, where financial influencers offer guidance on complex subjects such as budgeting and wealth management in short, digestible pieces of content. Financial institutions can leverage these platforms, stepping in as trusted advisors in order to highlight the benefits of cash as a tangible, stable, and socially conscious means of payment in an uncertain context.